SourcingMag.com recently printed an article from Alsbridge on Designing Your Organization for BPO and Shared Services. With one exception, it was quite good.
According to Alsbridge, there are three main components to the shared services model:
- the service management organization, or BPO,
which performs the shared services on behalf of the retaining organization,
- the retained organization
which is the organization “left behind” that retains all tasks not outsourced to the service management organization, and
- the governance layer
that manages the customer/supplier relationship, including service level agreements (SLAs), performance reporting, billing, and issue resolution.
This is dead-on. It’s good to see someone making it clear that the governance layer has to be treated as a separate entity. Some people seem to think there’s only two components: the service management organization and the retained organization, and that the retained organization should be responsible for managing the service management organization. This, of course, is very problematic. Typically, your retained organization consists of employees who didn’t negotiate the contract and don’t have the authority to tell the service management organization to “do their job and get it right” if the service management organization isn’t performing up to expectations, and they definitely don’t have the authority to withhold payment until the terms of the SLAs are met.
Of course, the point of the article was how to go about designing the 3-part model. According to Alsbridge, you should use a top-down design that defines, in succession:
- vision and strategy
- design criteria
- operating model
- shared-services organization structure
- retained organization structure
- job descriptions
- role profiles
while simultaneously using a bottom-up design, guided by the governance council, to flesh out the organization structures and job descriptions – if you want to arrive at the proper model.
The article takes deep dives into each of these steps, starting with vision and design principles, for which it gives the following examples.
We will deliver a shared service organization that
- increases the quality, efficiency, and speed of Procurement transaction services
- improves reporting
- delivers significant cost savings
- organize to ensure flexibility and responsiveness to customer requirements
- minimize cost in delivering agreed service levels
- ensure clear roles and accountabilities
- structure to maximize work process effectiveness, quality, and excellence while exploiting economies of scale
- create a rewarding, challenging, and stimulating working environment
And, at this point, you realize that the article missed step 0, which I believe to be absolutely critical if you want to get it right.
Why are You Engaging a BPO?
Before you even start the process, you should have a good understanding of why you want to outsource part, most, or all of an internal function to a BPO. You need to understand what you are doing well, what you are not doing well, what could be done better, and why, and then figure out what tasks you plan to outsource and what tasks you plan to keep in house before you even begin the organizational design process. This is because the skill-sets need to do tactical procurement versus strategic supply-base identification versus contract negotiation are totally different and your organization design needs to reflect the tasks being done appropriately. How you plan to split up the work will affect your vision, your design principles, your criteria, your operating model, your shared-services organization structure, and your retained organization structure, because, let’s face it, sourcing and procurement is not like HR and Accounting.